In a case of first impression, the Ohio Seventh District Court of Appeals recently held that the “anti-washout” provision found in various assignments of overriding royalty interests was not binding on the assignees of the original lessee after the underlying leases had expired because there was no privity of contract.[1] In 2010, Marquette Exploration, LLC, acquired numerous oil and gas leases, and subsequently assigned overriding royalty interests in those leases to Marquette ORRI Holdings, LLC (“Marquette ORRI”).[2] These assignments contained an “extension and renewal clause” which stated:
The overriding royalty interest hereby assigned in a Lease shall be applicable and attach to all extensions, modifications, ratifications, amendments, renewals, top leases and/or new leases of such lease covering all or any portion of the lands and interests which are included in such lease as of the Effective Date, taken, contracted for or acquired by Assignor or an Affiliate of Assignor while such lease is in effect or within a period of two (2) years after the expiration or termination of such lease.[3]
The assignments stated further that the terms and conditions therein were binding on the parties’ successors and assigns.[4] Portions of the overriding royalty interests were later conveyed to Utica ORRI Holdings, LLC (“Utica ORRI”), and the leases were assigned to Ascent Resources- Utica, LLC, with EQT Production Company and XTO Energy, Inc. each subsequently acquiring one of the leases.[5]
Upon expiration of the leases, but within the anti-washout clause extension and renewal period, Ascent, EQT, and XTO (collectively, the “Appellees”), entered into new leases with the existing landowners.[6] Although wells were drilled and producing under these new leases, no overriding royalty interests were being paid to Marquette ORRI or Utica ORRI.[7] As a result, Marquette ORRI and Utica ORRI filed claims against the Appellees for breach of contract, among other claims.[8] In response, the Appellees argued that the extension and renewal clauses were unenforceable, and so the overriding royalty interests expired with the underlying leases.[9] The trial court found that the overriding royalty interests could not be extended or renewed once the underlying leases expired and, thus, the associated overriding royalty interests also expired.[10]
On appeal, the Seventh District (the “Court”) affirmed the trial court’s ruling. The Court held that the Appellees were not bound by the terms of the extension and renewal clause because they were not parties to the original underlying leases or to the assignments of overriding royalty interests.[11] Specifically, the Court determined that there was no privity of contract between the Appellees and the original lessee or the parties to the assignments of overriding royalty interests containing the extension and renewal clause.[12] Accordingly, because the Appellees were not parties to the original leases or assignments of overriding royalty interests, there was no privity of contract, and the overriding royalty interests expired along with the original leases.[13]
Authored by Ryan Stewart
[1] Marquette ORRI Holdings, LLC v. Ascent Resources-Utica, LLC, 2022-Ohio-3786.
[2] Id. at ¶2.
[3] Id. at ¶3. By amendments to the assignments of overriding royalty interests, the two-year extension and renewal period was reduced to one year. Id. at ¶5.
[4] Id. at ¶4.
[5] Id. at ¶6.
[6] Id. at ¶7.
[7] Id. at ¶8.
[8] Id. at ¶9.
[9] Id. at ¶¶8-10.
[10] Id. at ¶12.
[11] Id. at ¶¶27-28.
[12] Id. at ¶29.
[13] Id. at ¶¶29-30.
Ryan represents clients in connection with transactional matters, due diligence, complex mineral titles, lease analysis, surface use issues and title curative. In addition, Ryan has extensive experience in the drafting and review of original drilling title opinions, as well as supplemental drilling title opinions and limited acquisition title opinions. He also assists in litigation and regulatory matters, including unitizations.